Gold Hits Two-Year High as Analysts Tip Further Rises

Falling markets, a dip in oil prices and expectations of lower-for-longer interest rates should continue to drive up the precious metal.
By Paul Whitfield ,

Gold's impressive run hit new heights on Wednesday, setting a two-year high of $1,373 an ounce on Wednesday, and has further to run according to UBS, which tipped prices to hit $1,400 an ounce in the near term.

Gold has entered a "new bull run" according to UBS's Joni Teves, who predicted demand would be driven by falling interest rates, pressure on the dollar, quantitative easing in the U.K., continued concerns over the state of the world economy and, of course, the U.K.'s decision to bail out of the European Union.

"The U.K.'s vote to leave the EU further underpins gold's macro narrative, reinforcing the themes of further dovish shifts in monetary policies, consequently lower yields and heightened uncertainty," Teves and her team noted. "We continue to expect US real rates to fall from here and ultimately for equilibrium real rates to settle lower and have limited upside."

Spot gold prices rose more than 1% during Asian trading hours on Wednesday to $1,371.40, its highest mark since March 2014, while gold futures for delivery in August delivery climbed as high as $1,373.70 on the New York Mercantile Exchange, before slipping back in Europe's morning to $1,371.90, still up 1% on its Tuesday price. Gold has gained 27% since the start of the year.

Silver futures for September delivery rose even more sharply Wednesday, climbing 2.58% to $20.42. Silver prices have outpaced gold this year, rising 46% since January.

Falls in European stock markets and a tumble in the oil price accompanied Wednesday's spike in the gold price. Germany's Dax was by late morning local time down 1.89%, France's Cac 40 fell 1.77% and London's FTSE 100 was down 0.55%, following Asian markets lower as a post-Brexit bounce ran out of steam and risk aversion returned. Brent crude prices fell to $47.63, down $0.34, or 0.7%, on Wednesday, adding to a 4.3% decline on Tuesday.

UBS is not the only one predicting that gold will go on a run.

"The rally goes on, with little sign of it stopping yet," noted IG market's technical analyst Chris Beauchamp on Wednesday. "The $1390 mark is the next area to watch, followed by the August 2013 peak at around $1440. It would now need a firm close below $1350 to suggest the bounce has run its course."

Even predictions of $1,440 an ounce are conservative compared to the ultra-bullish, and apocalyptic, prediction of CLSA's Christopher Wood, who on Tuesday set a long-term price target of a record $4,200.

"The view here remains that central banks, including most importantly the Federal Reserve, will not be able to exit from unconventional monetary policy in a benign manner and will remain committed to ongoing balance-sheet expansion in one form or another," he wrote in a note published Tuesday. "Such policies will ultimately discredit central banks pursuing unconventional monetary policy, threatening the stability and indeed integrity of the current fiat-paper-money system."

Wood, in short, is tipping the eventual unraveling of the system underpinning global currencies, leading the dollar to collapse and ushering in a return to a gold standard.

Even the most ardent gold bug might hope he is ultimately wrong.

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